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April 27, 2012

PIMCO’s Gross, El-Erian Pessimistic on Jobs, Economy

PIMCO’s leaders share concerns over outlook for remainder of the year

Bill Gross of PIMCO spoke to Bloomberg T.V. on Thursday and said that he was doubtful of another round of quantitative easing in June, but "if we see some weak employment reports over the next two months, then QE3 is back on." He also said that there’s a risk of a double-dip recession “if liquidity disappears.”

As if on cue, the Commerce Department said Friday that the economy grew at an inflation-adjusted annual rate of 2.2% in the first quarter of 2012, a marked slowdown from the 3% growth rate at the end of 2011.

PIMCO CEO Mohamed El-Erian then weighed in with Bloomberg T.V.'s Betty Liu, saying that the Federal Reserve is likely to provide additional assistance if the economy weakens further, but there is "no immediate need" to do so.

El-Erian also said that the U.S economy needs to add 250,000 to 300,000 jobs every month if we are to "seriously start reducing unemployment to something that is acceptable," but that "the labor market is cooling off and doing so too early."

In his comments on Thursday, Gross (left) went on to say that "euro land is a dysfunctional family … more dysfunctional than Democrats and Republicans in Washington, DC."

"We certainly do not want that,” Gross added when asked about the potential breakup of the euro zone. “A break up produces disastrous short-term consequences. I think markets know that and policymakers know that, too. "

On recent trends in unemployment, Gross was equally pessimistic.

"They are beginning to move lower, it appears," he said. “Ben Bernanke spoke to that and answered some questions in terms of seasonality. We may have seen some strong seasonality in terms of prior reports, not last month's, but the two before that. We have seen initial claims on unemployment move up today. They have indicated for the past three weeks that we are really moving into a weaker employment framework, which would probably produce 150,000 jobs, but not the 200,000 that really got the market excited."

Picking up on Gross’ comments on Friday, El-Erian said job growth in the U.S is “stuck at 8.2% with over 5 million Americans unemployed. It is particularly bad among the young. That is not good news. We need a very vibrant labor market and we are not getting that.”

On whether we'll see necessary job growth at any point this year, El-Erian said, "It is unlikely. What I worry about most is that we will repeat what we saw in 2010- 2011, where we started the year off strongly and then come the second and third quarter, it slows down and we lose the momentum that is so important to sustain a really good recovery."